Influencer Marketing Business: Differentiate or Adapt

The creator's economy is estimated to hit $528 billion by 2030, which is currently worth $156 billion. Good news for the creators, but is it the same for the influencer marketing companies?

Creators' major source of income is through direct brand deals, but when it comes to influencer marketing agencies, it's getting crowded. There are creative agencies, media agencies, influencer marketing agencies, and now there are influencer management tech platforms.

There has been a mushroom growth of influencer marketing companies over the last few years because the entry barriers are low. Many people have quit their agency jobs and have launched their own agencies because the size and potential growth of the industry is pretty impressive. As a result, the industry is getting fragmented, and soon enough, a pricing war will start as the future of winning business will boil down to project and campaign-based RFPs. It will be a challenge for independent agencies because they will be competing with the holding groups and large creative agencies.

If we put a structure in place to understand the flow, media agencies are on the top. They have the biggest pool of clients, and almost all of them have built or are in the process of building in-house capabilities. Instances where they prefer to work with independent agencies could be to manage the cash flows, or maybe their in-house product isn't ready yet. Prominent holding groups prefer to buy out smaller but progressive agencies instead of trying to build everything from scratch.

Independent influencer marketing players have a struggle ahead of them. Some might pivot and enter talent management; some have influencer and talent management offerings already but do not have the data and analytics capabilities. They will either build one or outsource it.

This is where Influencer Marketing Platforms enter the picture. Most of the platforms operate on subscription models and are offering packages for individual users, small groups, mid-sized agencies, and all the way up to enterprise packages. The biggest challenge would be the inconsistency of subscriptions. These platforms are offering discounts to lure more users, and in some cases, the user is offered a higher discount if they choose to unsubscribe. Clients may work with "X" for a month and then come across "Y," which is slightly an upgraded version of X. Clients will switch to Y without hesitation. Sooner or later, there will be "Z." The key question will remain—is this model scalable?

Based on experience, I am certain that very soon, influencer marketing will be under the client's procurement department's list of review items. That is when things will get even more challenging. Procurement works on a straightforward methodology—"More for Less." This is when things for many players will get uglier. Influencer and talent categories are capital-intensive line items on the balance sheet. Whether the client has paid or not, they need to get paid. In most instances, clients negotiate a credit term with the publishers/vendors. So, if the agreed credit period is 60 days, the influencer or talent will not wait for 60 days, and at the same time, the agency cannot stop accepting new briefs while waiting for the payments to be cleared by the clients. To deliver a higher volume of work, agencies will also have to hire more people. These are some early signs of margin depletion, which eventually could lead to commoditization, M&As (mergers and acquisitions), and could possibly lead to a few insolvencies also.

From a business point of view, instead of looking at a soaring CAGR of 22.5% year on year, influencer marketing businesses should focus on two key areas: "business model" and a "sustainable growth strategy."